San Diego’s Homegrown VCs Waning, But Out-of-Town VCs Make Up the Difference

5/20/09Follow @bvbigelow

Here’s a question that CEOs might be able to relate to: What should you do when the purring financial machinery under your control just doesn’t feel right (and the anecdotal evidence suggests something has gone haywire) but your outside auditor is saying, “Nope. Everything is looking pretty normal to me.”

In this particular case, the purring financial machinery is San Diego’s venture capital community and the auditor is Bill Molloie, a venture industry veteran and the new head of PricewaterhouseCoopers’ emerging life sciences practice in San Diego. Before landing in San Diego earlier this year, Molloie spent three years in China, where he led PwC’s venture practice in Shanghai.

When I met Molloie  for lunch a few weeks ago, along with PwC’s Brian Caisman, we talked at length about the unusually weak showing in first-quarter venture capital investments for the San Diego region. A survey done by PwC, the National Venture Capital Association, and Thomson Reuters counted just $87 million invested in 15 local deals. The amount invested was down 57 percent from the previous quarter and 80 percent from the first quarter of 2008.

The data reflects the effects of the worst recession in decades, of course. But beyond that, I told Molloie it appears that several of San Diego’s homegrown venture capital firms no longer appear to be actively investing—although the principals would never publicly acknowledge it.

I showed Molloie some VC industry data I had collected from the National Venture Capital Association. The Virginia-based NVCA found that in 2008 there were 17 venture capital firms with headquarters in San Diego, an increase from 10 homegrown VCs in San Diego that the NVCA counted a decade earlier. But I’m skeptical of the data. Several of the VCs on the 2008 list might still be paying their NVCA membership dues, but they have not been investing. What may be more relevant is a list from the NVCA that shows just seven San Diego-based VCs have raised new funds since 2005: Avalon Ventures, BSD Venture Capital, Finistere Partners, Mesa Verde Venture Partners, Mission Ventures, Revolution Ventures, and TVC Capital.

I also showed Molloie data from Dow Jones Venture Source that shows VCs headquartered in San Diego were involved in just 8 percent—13 of 158—of the venture-backed deals that were counted in the region last year. That’s almost half the number in 2003, when San Diego-based VCs were involved in 15 percent (27 of 177) of the venture deals in the local region.

After absorbing all this, Molloie promised to do his own analysis of … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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